Wondering if we should sell our homes or rent them?

Question

My fiancé and I had planned to sell our homes late spring/early summer with plans to build a home in a year or so. (Texas gulf coast). Our thought was that we needed to strike while the iron was hot to maximize our profit during this seller’s market.

Her home has no mortgage and is valued around 420k. My home is valued around 440k with a 190k balance. Both homes need updates like carpet, painting.

With lumber and building costs so high, our thought process has changed. We are now considering renting both our homes while we wait to build. (We plan to move into her parents 2nd home to be near them to assist them as needed and will only be paying a small amount to cover taxes, insurance while we stay there).

We will monitor the market and plan to build once we see costs come down a bit. We are thinking perhaps instead of selling we pull out equity from each home to build once ready and continue renting the 2 homes that will ideally become assets that are essentially paying for our new home.

We are nervous. We’ve never been investment property owners and are reluctant. Personally, I like the idea of holding these 2 homes as growing assets but we are uncertain about being out of town landlords, tenant nightmares, maintenance and repairs, etc.

Any insight and advice you can offer is appreciated.

Eric James · Answer

Homes at those price points generally don't make good rentals. At least not in terms of cash flow.

Greg Weik · Answer

I'm with @Lucia Rushton, buy and hold.  Don't be swayed by a "sellers market."  Those come and go.  The value of your homes, over time, will always trend upwards.  And adding passive income to the mix is a no-brainer to me.

Pull some equity from the homes if you need to, to build your dream home, but use that debt to your advantage.  Having three homes is the smarter play, vs. selling the two and then building the new one with cash.

A simple analysis looks like this: If you have $500,000 to invest, would you buy 1 home for $500,000 cash, or would you buy 5 homes, each with a $500k sales price and with $100,000 down?  Some people "feel" better without debt, but if you buy a single home with the cash, you are not building nearly the wealth (x5) you would if you had the 5 homes.

In the example above, assume each home appreciates at a certain rate.  5%, for example, or $25k/year.  If you own 1 home that appreciates at 5%, great, it's worth $525k at the end of a year.  If you own 5 homes that are appreciating at 5%, however, your wealth grows 5x faster - $125k wealth built in that same time frame.

You alluded to being nervous about being a landlord and renting out your properties.  Don't be.  If you prepare them - ensure they are in great shape when they go on the rental market - and if you find a property manager who knows what they are doing (and how to place great tenants), you will do just fine.

George Mastrosavas · Answer

So you feel like it’s time to move, but you keep asking yourself, Should I really sell my house? After all, there’s so much history packed inside those four walls—not to mention all your stuff. Your house is the most valuable possession you own in more ways than one.

The good thing is, you’re already asking the right questions. After all, selling at the right time can be a boost to your finances and your lifestyle. While selling at the wrong time can cause trouble for years to come. Here is some help for you to walk through all the other questions you need to answer before you make the call to sell your home.

Let’s get started!

Should I Sell My House or Rent? Here’s When to Say Yes.

It’s a pretty common myth that market conditions should drive your decision to sell—or not to sell. But market conditions are only part of the picture. And not the most important part! Your personal situation needs to take center stage. That means the best time to sell a house is when your life circumstances and the market align.

Of course, it can be hard to know exactly when that is. That's where expert advice comes in handy.

Okay, maybe all the signs are saying it’s time to get your home on the market. Just remember that your real estate market is unique—and so is your financial situation. An experienced real estate agent can help you find out how the current housing market is shaping up in your area so you can decide if a sale makes financial sense for your family.

That’s why you need to partner with a pro you can trust: They’ll provide honest advice so you can do what’s best for you and your budget. A good agent puts service before sales—but knows how to get things done when it’s time to sell. They bring experience and confidence to the table when they handle their many job duties which include:

• - Giving you advice about updates or repairs that will make your home more attractive
• 
• -  Helping you set the right price for your home
• 
• - Marketing your home so it receives as much exposure to potential buyers as possible
• 
• - Scheduling showings with potential buyers
• 
• - Advising you as you negotiate offers
• 
• - Handling all the required paperwork

That’s a lot of responsibility—so finding a top-performing agent who knows your market is a must!

Bruce Cline · Answer

More info... Homes in our neighborhoods are selling at 20-30K ABOVE listed purchase price.  This goes back to my first post regarding striking while the iron is hot. (over 500K equity available).  We could essentially build and have a small or NO mortgage on our new home and have renters paying down the loan balances for the equity we pulled out.  I'm leaning toward the equity/hold option with the idea of selling the 2 assets down the road a bit.  Still lots of research to do but I appreciate everyone's knowledge and advice on this topic.

Bob Metry · Answer

@Bruce Cline I like to start with thinking if I would buy these properties as rentals at the sales price you could expect to get? I also would consider the huge tax savings of no capital gains tax on the first $250k if single and $500k if married of gains if you lived in the homes for 2 out of the last 5 years. Look into that tax rule if you are not familiar with it. Good Luck!

Lucia Rushton · Answer

@Bruce Cline I personally am a buy and hold believer. That is what gives us generational wealth.

If you haven’t reached out to a Realtor yet, allow me to run the comps for you to give you an accurate picture with today’s market.

I would also advise talking to your tax professional who knows your current financial portfolio to see if there is a benefit to at least selling one.

DM if we can be of service.

Best wishes

Theresa Harris · Answer

First run the numbers.  How much do they cost to maintain (taxes, mortgage on the one, etc) and what can you get for rent?  Read up on the laws around rentals for the area where the houses are located.  You can also look at property management companies-find out all of their expenses from monthly fees to fees to place tenants, how long it takes for them to get your the money, etc.

As Becca said there are also tax implications, so maybe rent them for a few years and then sell them (talk to an accountant).

You mentioned updates to properties. If you need to replace carpet, I'd put in something else that is more durable for a tenant.  Lots of people on BP use luxury vinyl plank for flooring in rentals.

Bill B. · Answer

The mortgages don’t matter, what matters is the gain. (Sales price minus selling costs - Purchase price minus buying costs) is it’s between $200-$250k I would sell at least one now tax free. You’re talking a $30k tax savings. That’s gonna take a lot of rent to make up. Plus you have cash for your dream home. If it’s over $300k consider getting married to take the $500k tax free sale (seems unlikely at $400k values but you never know. Plus you could just sell the lower one as a single person and wait 2 years to sell the larger gain as a married couple.)

If the gain is under $100k then you only have to make $15k to be back to even, that’s a judgement call.

Inflation is probably going to cause rising prices. Rising interest rates and falling stock market will cause falling prices. Inflation probably wins?  Selling one also gives you more cash for when you purchase dream home and rates are higher.

Becca Summers · Answer

I'm a fan of always keeping properties. The few things that come to mind to consider is one are your properties good rentals with a healthy demand in terms of location bedroom bathroom count etc. Second if you move out of the properties for more than 3 years you lose the ability to sell them at a tax-free game with current tax laws. Last one is sometimes people find it very emotional to rent out their personal properties and take any of the damage caused by the renters very personal.

Bruce Cline · Answer

I was thinking about waiting but honestly I can list my home for nearly $100k over what it's value was last year and there is exactly 1 four bedroom under 550k in my entire zip code of N Texas currently on the market.  Seems the best thing for my fiance and I to do at this time is sell them both and take a huge profit while we can since the future is uncertain.  Plus, we've never been landlords and don't think we want to take that on at this time in our lives when we are looking to move and start slowing down...

Wondering if we should sell our homes or rent them?

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